Building a practice by managing your costs

17 May 2004 Francois Davel: THOUGHT STUDIO

Costs are a major factor in any Financial Services Practice; just as it is in any business. Yet, cost seldom gets the same attention it gets in other small and medium size businesses.

It is amazing how many intermediaries have no, or very little, insight into the costs of their practices.

There are many activities that an intermediary performs without any sense of what it might cost. Take a standard FNA (financial needs analysis) as an example. Before you continue, estimate what the costs are of a standard FNA. Write it down.

To get a feeling for the costs of a FNA you need to calculate an hourly rate for you, and each of your staff members. The calculation below is a rough approach. To refine it you should consider your specifics and get the help of an expert (e.g. your accountant) if appropriate. Take your salary and divide it by 112 (the benchmark for productive working hours per month). You must decide how you define salary.

Staff Members Salary Rate
Intermediary 1 R20 000 R178.57
Intermediary 2 R16 000 R142.86
Administrative member 1 R8000 R71.43
Administrative member 2 R5000 R44.64

Now calculate your office overheads as well (irrespective if you pay for it or not): Your office space, Technology (PC, Internet, specialised software packages), printing (printer/ink/paper) stationary, telephone (including mobile) calls, entertainment (including coffee, milk sugar), and don’t forget travel, as well as other expenses. Again, calculate an hourly rate: Take the total overheads and divide it by 112 times the number of employees. This will give you an hourly rate per staff member.

Total overheads Staff # (x 112) Hour Rate
R15 000 (4 x 112) R33.48

To get to a final hourly rate add the overheads hourly rate to that of each individual staff members rate:

Staff members Staff rate Overheads Hour rate
Intermediary 1 R178.57 R33.48 R212.05
Intermediary 2 R142.86 R33.48 R176.34
Administrative member 1 R71.43 R33.48 R104.91
Administrative member 2 R44.64 R33.48 R78.12

With these rates in hand you can focus on the FNA costs again. To proceed determine the average time it takes to complete such an FNA. Remember most people under estimate the duration! Make sure to include every staff member’s contribution. You should also include the time you take to explain the FNA to the prospect. The last step will be to multiply the number of hours per staff member with the appropriate rate and to add it up to a total:

Staff members Average hours Hours rate FNA Costs
Intermediary 1 4 R212.05 R848.20
Administrative member 1 1.5 R104.91 R157.37
Total R1005.57

This is the cost of an average FNA. Compare it with your estimate from earlier. Shocked? Surprised? Satisfied? Hopefully you’ll have fresh food for thought. Fees, especially when you don’t get business from your FNA, suddenly becomes an option, or at least more attractive.

Happy thinking! 
Quick Polls


There are countless articles written about South Africa’s poor retirement outcomes. Which of the following would you single out as the biggest contributor to local savers not accumulating enough to buy an adequate and sustainable pension?


Lack of personal accountability
Poor participation in formal retirement funds
Reluctance to seek financial advice early on
SA’s high unemployment rate
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